According to a recent Oliver Wyman report, “A Money and Information Business: The State of the Financial Services Industry 2013,” the “source of value in financial services has shifted from balance sheets and physical distribution networks to data.”
Despite this, many organizations have largely persisted with their historical business models and ignored the value that their data possesses.
As the financial services industry rises from the recession and adjusts to the new regulatory and slow- growth environments, credit unions are being pressured to find new ways to generate revenue. The data that your business holds is incredibly valuable and leveraging it to attract – and retain – members may be one of the best ways to succeed in this new climate.
By accessing and understanding members’ relationship and spending data, you can develop an in-depth knowledge of your members and their behaviors. Where do they shop? How do they pay? How do they prefer to interact?
Many organizations talk about payments, but credit unions have a key asset that others don’t – the actual payment transactions made by members. And this data shows lifestyle trends and needs that can be leveraged for more effective product promotions designed to benefit all parties.
It seems simple in concept, but credit unions frequently struggle to get a complete picture of individual member behaviors due to an information environment made up of dissimilar, separate information systems. As a result, the default is often a generic, cookie cutter, mass approach to product promotions that isn’t based on true member insight – and subsequently doesn’t drive the desired results.
Too often, I have seen credit unions struggle to attract new members, fail to provide existing members with the right incentives to maintain their business, and miss the opportunity to drive relationship expansion and profitable behaviors for the institution due to promotions that were based on responding to a competitor or “best guess” management thinking, rather than on intelligence of member behaviors and goals.
The solution to this problem is analytics. Through the use of tools that enable credit unions to segment their portfolio and develop insights, institutions can devise targeted promotions that better meet the needs of their members as well as drive the business results that the organizations want.
How might this look in practice? With sophisticated tools, credit unions can analyze members’ payment activity (e.g., electronic vs. cash & check; credit vs. debit vs. prepaid, Store X vs. Store Y shoppers, etc.), demographics (e.g., age, geography, gender, etc.) and/or profitability (e.g., top revenue-generating members, underperforming or “at-risk” segments, etc.).
Leveraging this knowledge, an organization can then create more effective, targeted strategies for these different kinds of members, and offer relevant, tailored incentives that provide members value as well as influence decisions that are most advantageous to the credit union.
Here’s an example: a credit union in California had the challenge to increase card portfolio profitability. To start their efforts, they used an analytics tool to evaluate and segment their cardholders to determine those who had used their debit cards less than five times per month. Next, they initiated a gift certificate-based incentive campaign designed to increase the number of signature debit transactions to nine per month.
This campaign not only drove an increase in the number of members meeting the nine-transaction threshold, it also encouraged hundreds of others to increase their debit card usage. Only those members who qualified received the offer, making the campaign very cost-effective, with benefits extending well after the campaign. In the first 12 months after the promotion, the credit union realized a 170% return on its marketing investment.
This credit union was so happy with the results that it initiated another campaign. In this case, it analyzed and segmented its member base to identify members performing less than $250 in signature transactions during the month. It then instituted a promotion that encouraged these members to spend $500 or more per month in signature transactions. If they met the criteria, they would receive $20 in gas vouchers. If their transactions totaled $900 or more per month, they received $40 in gas vouchers.
The results of this promotion included a 12-month program return on investment of 408%, 83% growth in POS signature spend, 64% growth in POS signature interchange revenue and growth of 156% in signature debit spend per card. Actual net interchange revenue gain was $53,140 in the first six months of the campaign, with a projected 12-month net interchange gain of $106,280.
These are just two among hundreds of examples I have seen where a credit union is able to create additional value by using the data they have available. You, too, can do this. By analyzing the wealth of member relationship and spending information at your fingertips, you can gain powerful insights to better understand your members’ activities and trends, as well as their particular needs.
Armed with this intelligence, you can offer customized promotions that simultaneously create high member satisfaction and drive behaviors that are most beneficial to your credit union.